Two monies, two markets? Variability and the option to segment

Richard Friberg

No 349, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: This paper examines the decision to create barriers to arbitrage for a firm selling on two national markets. Sunk costs of market segmentation imply that the option to segment markets is more valuable the greater the variability of purchasing power between markets. One result is that a monetary union may lead to market integration when a fixed exchange rate did not. Extensions examine hysterisis, transport costs and general equilibrium modeling.

Keywords: Exchange rate pass-through; law of one price; EMU; price discrimination; real options (search for similar items in EconPapers)
JEL-codes: F13 F15 F41 L40 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2000-01-04
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (2)

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Journal Article: Two monies, two markets?: Variability and the option to segment (2001)
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